Monday, February 23, 2004

ANNAPOLIS — House Speaker Michael E. Busch said late yesterday the state will reconsider its offer to lend Baltimore city schools $42 million, after the governor said a report on the system’s financial problems didn’t provide enough accountability.

Mr. Ehrlich, a Republican, offered the loan last week, but conditioned it on a satisfactory report from Robert Neall, a special financial adviser to the school system, on why city schools had a deficit of at least $58 million.

Mr. Neall delivered the report to Budget Secretary James “Chip” DiPaula on Friday, the same day he resigned as a volunteer adviser to the school system.

A source familiar with the negotiations who asked not to be identified said that the city school board rewrote Mr. Neall’s report before he submitted it and that the board’s changes were not acceptable to the governor.

Yesterday, Ehrlich spokeswoman Shareese DeLeaver said the report “fell short of the accountability the governor was looking for.”

She declined to say how the report fell short or if it would jeopardize the loan.

But Mr. Busch, Democrat, said Mr. Neall’s resignation, and the board’s treatment of his report, throws the situation “into a quandary.” Mr. Neall, a former state senator, was considered one of the legislature’s fiscal experts when he was in the General Assembly, first as a Republican and then as a Democrat.

“You can be sure the governor and the General Assembly are going to step back and reconsider their offer,” Mr. Busch said, adding: “For the board to turn around and say this is not satisfactory, after they put themselves in this situation, defies logic.”

Edie House, a spokeswoman for the school system, said Mr. Neall submitted his resignation in a letter delivered Friday to school board Chairman Patricia Welch.

Miss House said Mr. Neall gave four reasons for his resignation, including the feeling that he had “detected tension and dissatisfaction regarding my work” on the part of some members of the board and the administrative staff. She said Mr. Neall also felt he increasingly was being held responsible for the financial status of the board without the ability to have any impact on resolving the financial problems.

Miss House said she could not confirm the report that Mr. Neall was unhappy because the school board had rewritten the document he had prepared for the governor.

Miss House said Mr. Neall thought that not enough progress has been made toward resolving the school system’s cash-flow problems and that not enough has been done to reduce spending to convince state officials that the loan is justified.

Miss DeLeaver said Mr. DiPaula reviewed the report and briefed the governor on its contents Sunday. She would not comment on why Mr. Ehrlich says the report does not satisfy his demand that there be fiscal accountability before he approves the $42 million loan.

Baltimore Mayor Martin O’Malley and the private Abell Foundation each offered an $8 million loan to help the school system pay its bills.

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